Picture this: You’re a cannabis operator that packages flower and pre-rolls for sale on the wholesale market. You’re thinking of expanding into retail channels, and are considering expansion of your product offerings to include distilled products. You need to grow your operations in support of this expansion. But where do you start?
As many in the cannabis industry know, scaling operations to support new product lines is not a simple feat, especially if baseline processes are not clearly and thoughtfully defined for existing operations. The challenge is even greater in organizations with a history of acquisition growth, due to greater likelihood of disparate processes across entities and markets.
Optimizing inventory management is a critical first step for any product-focused company planning to expand. On its face, the concept of inventory management is fairly self-explanatory: It is the ability to track and have insights into purchasing, ordering, storing, using, and selling inventory. However, the strategic implications of inventory management are much more extensive. Having true inventory management capabilities means you have insights into your sales pipeline, a solid understanding of customer demand and what products you need to produce to meet it, and the ability to tie those production plans to what raw materials to purchase to manufacture enough of those products to fulfill customer orders.
To show what this optimization might look like, we’re sharing here the story of a company we recently helped upgrade their inventory management in anticipation of future growth and expansion. While they’re not a cannabis company, cannabis operators will likely recognize familiar aims and challenges in their story – and thus can learn from their solutions. Be on the lookout for our “Cannabis Connections” to draw similarities to inventory management challenges you may be facing.
Great Outdoor Cottages (GOC), a recently established manufacturer of high-quality cabins, park models, and cottages, came to us for help in achieving three specific strategic objectives:
- To develop a solid operational foundation by which to grow and continue expansion into new markets,
- To enhance and make more efficient their existing operational processes, and
- To support their goal of expanding from a solely wholesale focus to a retail one with significantly more product variation and product manufacturing configuration needs.
The need: Optimize inventory management
To achieve these objectives for GOC, CohnReznick’s Operational Excellence team set to work on evaluating the organization’s existing processes with a lens toward digitizing their supply chain processes. Maintaining these processes with technology, rather than manually, is the best way to establish, track, and measure KPIs that are trusted and can be used by management to make tactical and strategic decisions.
Inventory management was identified as an immediate foundational area of need, due to identified inaccuracies in inventory counts, lack of existing standardized processes, and its importance in the structural foundation of any organization with product manufacturing capabilities.
Many cannabis operators have inventory management challenges, including:
- Marrying and tracking regulated cannabis inventory and other raw materials or third-party inputs necessary for cultivation or product-creation activities
- Understanding how much of any one item should be reordered, and with what cadence, to meet consumer demand and production needs
- Identifying where these raw materials, work-in-process products, or finished goods live within the various rooms of each facility
To get to a place where inventory management capabilities are standardized enough to support scaling operations, you must first take a step back to identify particular areas where challenges persist, and take inventory of key standardized processes and their adherence to industry standards and best practices.
In the case of GOC, three main components of inventory management were addressed to effectuate immediate change and set the foundation for future growth:
- Warehousing, or the ability to store raw materials and finished goods inventory in a way that makes most efficient use of the available space from a storage perspective
- Materials handling, or the flow of inventory materials from receipt to storage, for use in production processes and ultimately for fulfillment of customer orders
- Ordering, or the ability to maintain appropriate raw materials inventory to support production needs and meet consumer demand
To address these areas of concern, the Operational Excellence team took several actions that provided immediate impact. Read what we did and why – and look for some Cannabis Connections in parentheses.
- Established processes within each area of need were audited and enhanced, to enable more efficient utilization of existing capabilities and systems.
Warehousing layout challenges were addressed with a new layout to reduce inefficiencies and maximize storage capacity to meet production needs. As with any production line, streamlining where things like unregulated raw material inputs (such as fertilizer for grows or sugar for coating edibles) and packaging materials live within a storage space makes put-away and retrieval easier while also enabling more accurate inventory counts.
An audit of BOMs (Bills of Materials), or the “recipe cards” of source information for inventory requirements, production instructions, and costing information in support of products down to product type (or strain level), was conducted to address inaccuracies that previously led to variances in consumption rates and left gaps in inventory backlog needs.
- Where standardized processes were not found, the team conducted stakeholder workshops to suss out and align existing process activities with standard industry best practices.
At GOC, our team digitized and established a documented system-based process around cycle counts, receiving, and transfer processes to support accuracy of inventory-related metrics, including counts and locations. (Processes like this can and should be in place when any cannabis materials and unregulated inputs are received, moved from vaults to production lines, or moved to final packaging and staging areas for pickup.)
The team also identified areas where work centers should be implemented to accurately capture production data that feeds directly into production planning and costing metrics.
- Training sessions were then held to facilitate user adoption of new system processes, as well as provide refreshers on existing protocols.
Establishment of training materials around documented processes is essential to enabling efficient operations, especially in high-turnover environments.
Following the implementation and training of the new digitized warehouse receipts process, GOC experienced a reduction in back-order receipt list size by 80%, which led to employee time savings, an increase in productivity, and the potential for labor cost reduction.
Start your inventory management transformation
CohnReznick’s Operational Excellence team can help cannabis operators enable expansion into new product lines, state markets, and sales channels, while simultaneously putting reliable, repeatable processes in place to help ensure inventory count accuracy across cannabis and non-cannabis products and raw materials. Contact our team for more information or to get started.
Subject matter expertise
Managing Principal – Real Estate, Cannabis Industries
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